While there is a decent amount of literature available for investor consumption on the topic of iGaming, we thought some cliff notes on the topic could be helpful.  Look for more detailed notes in the near future.



We think some form of legalized internet gaming in the United States is inevitable.  While it will likely be a couple of years before it's commercial, investors could begin to discount this potentially large opportunity so we are going to start talking about it.  Poker is where it will all likely start (or should I say resume).  Given its critical mass of players, PartyPoker seems to have a competitive advantage in reentering the US.  For the "brick and mortar" guys, Harrah's with its World Series of Poker seems best able to capitalize.  We will have more on these topics in upcoming posts. 



Here are the cliff notes:


Why is iGaming interesting?

  • Aside from Macau and Singapore, iGaming is one of the few subsectors in gaming that’s actually been growing. According to H2GC, the online gaming market has grown at a 23% CAGR from 2001-2008 to an estimated size of $22BN in 2008 and expected to reach $34BN by 2012.  In 2008, internet gaming accounted for 7% of the global gaming market.

What are the forms of iGaming?

  • In 2008, sports betting comprised the largest slice of the iGaming market with $10BN of revenues, followed by casino online gaming, poker and lastly bingo

iGAMING: "CLIFF NOTES" - igaming1


What are the biggest iGaming markets?

  • Even though internet gaming is illegal, US is still the single largest gaming market, estimated at roughly $6BN in size today
  • Regionally, Europe is the largest iGaming market, followed by Asia and North America

iGAMING: "CLIFF NOTES" - igaming2


Who are the players in the space?

  • Some of the public market igaming players include:
    • Partygaming/Bwin
    • Sportingbet
    • 888
    • Unibet
    • Playtech
    • Betsson
  • There are also a host of private companies, like Betfair (seeking IPO), Full Tilt Poker and PokerStars

iGAMING: "CLIFF NOTES" - igaming3


TODAY’S S&P 500 SET-UP - October 5, 2010

As we look at today’s set up for the S&P 500, the range is 18 points or -0.97% downside to 1126 and 0.61% upside to 1144. Equity futures are trading above fair value in the wake of the Bank of Japan's decision to cut its interest rate to almost zero and announced intentions to set up a ¥5TN QE fund to increase liquidity in its financial system. Today's macro highlights include; September ISM Non-Manufacturing Index and related sub-components.

  • Chevron (CVX) said it will begin buybacks in 4Q under previously announced repurchase program
  • Equifax (EFX) completed purchase of Anakam on October 1; terms not disclosed
  • First Midwest Bancorp (FMBI) said CEO Thomas J. Schwartz plans to retire by 1Q 2012
  • MaxLinear (MXL) gave preliminary 3Q revenue forecast $18.4m-$18.6m vs previous $20m-$20.5m forecast, estimate $20.3m
  • MEMC Electronic Materials (WFR) subsidiary SunEdison sold plant in Italy to First Reserve; sees total price EU276m 
  • Mosaic (MOS) posted 1Q EPS 67c vs estimate 71c


  • One day: Dow (0.72%), S&P (0.80%), Nasdaq (1.11%), Russell (1.45%)
  • Month/Quarter-to-date: Dow (0.37%), S&P (0.4%), Nasdaq (1.03%), Russell (0.97%)
  • Year-to-date: Dow +3.07%, S&P +1.94%, Nasdaq +3.31%, Russell +7.06%


  • ADVANCE/DECLINE LINE: -1347 (-2460)
  • VOLUME: NYSE - 943.71 (-11.99%)  
  • SECTOR PERFORMANCE: Every sector declined yesterday - European debt worries remain elevated as Ireland’s central bank cut growth forecasts for 2010 and 2011 and as the government’s budget proposal in Greece showed expectations of GDP contractions in 2010 and 2011.
  •  MARKET LEADING/LAGGING STOCKS YESTERDAY: Sara Lee 7.22%, Ford +4.73% and Wynn +3.93%/CCE -30.79, American Express -6.53% and Micron -4.12%
  • VIX: 23.53 -4.58% - YTD PERFORMANCE: (8.53%)
  • SPX PUT/CALL RATIO: 1.48 from 1.32 +12.18%


  • TED SPREAD: 17.40, 3.043 (21.199%)
  • 3-MONTH T-BILL YIELD: 0.13% -0.03%
  • YIELD CURVE: 2.09 from 2.19


  • CRB: 283.99 -0.60%
  • Oil: 81.75 -0.13%
  • COPPER: 366.40 -0.72%
  • GOLD: 1,314.70 -0.06%


  • EURO: 1.3691 -0.73%
  • DOLLAR: 78.44 +0.46%




  • European Markets: FTSE 100: +0.27%; DAX: +0.10%; CAC 40: +0.66%
  • European markets after a cautious open have moved higher.
  • Fixed income markets were initially helped by Bank of Japan cutting interest rates and setting up an asset purchase fund, though this was tempered by Moody's comments that they may downgrade Ireland's sovereign credit rating further.
  • EuroZone economic leaders met with China's Prime Minister and in a news conference indicated they had urged China to allow an orderly and broad-based appreciation in the yuan though say China doesn't share the regions view for quicker yuan appreciation.
  • Major indices moved higher supported by generally constructive revisions to the regions Services PMI data with financials amongst the leading gainers and all sectors trading up on the day.
  • French Sep Final services PMI 58.2 vs preliminary 58.8
  • Germany Sep Final Services PMI 54.9 vs preliminary 54.6
  • EuroZone Sep Final Services PMI 54.1 vs preliminary 53.6
  • UK Sep Services PMI 52.8 vs consensus 51.0 and prior 51.3


  • Most Asian indices ended the day higher after the Bank of Japan cut its overnight rate target to between zero and 0.1%, from 0.1% and announced that it will create a fund to buy JGBs and other assets. It will buy up to ¥3.5T ($42B) of long-term JGBs and Treasury bills within one year of beginning the fund and will buy approximately ¥1T ($12B) of commercial paper, asset-backed commercial paper, and corporate bonds within one year.
  • The Reserve Bank of Australia unexpectedly kept its cash-rate target unchanged at 4.5%. Many economists had expected the RBA to raise rates following a hawkish speech by RBA Governor Glenn Stevens last month. Shanghai markets are closed
  • Euro area urged China to allow an orderly, significant and broad-based appreciation of its currency and added the Chinese authorities do not share the same view

Howard Penney
Managing Director


THE DAILY OUTLOOK - levels and trends















HST should handily beat, as everyone knows, but the lack of a big forward guidance raise could disappoint



Host Hotels reports its 3rd quarter results on Oct 13th.  We are projecting $1,019MM of revenue, $159M of EBITDA and FFO of $0.13 - handily beating consensus numbers.  HST should modestly raise guidance for FY2010, which may imply in-line to slightly lower guidance for Q4.  We do think that the 3rd quarter will mark the last big beat and raise quarter. 


We’re below the street for most lodging company results starting in 2Q2011.  Our thesis is that the April-July period of 2010 benefitted from pent up demand and we've seen a sequential slowdown since July.  The seasonally adjusted dollar RevPAR figures for August and September support our thesis.  Q2 2011 RevPAR may actually turn negative.  Up until then, however, analysts' estimates look reasonable but full year 2011 looks high to us.



3Q2010 Detail:

*** Note our numbers aren’t same store

  • Property revenue of $949MM
    •   Room revenues of $627MM growing 8.2% YoY
      • RevPAR up 10.8% YoY to $120.09
      • Occupancy at 74.6% and ADR at $161.09
    • Food and beverage revenues growing 6% YoY to $257MM
    • Other revenues up 3% YoY to $66MM
      • We assume lower cancellation and attrition fees negatively impact this quarter’s results by $5MM
    • Rental income of $20MM; $60MM of revenues from leased select service hotels & office buildings and a $10MM charge for hotel sales for property which HST records rental income
    • $741MM of property level expenses, broken out as follows:
      • $179MM of room expenses, amounting to a 6% YoY increase and a CostPAR increase of 2%
      • $213MM of food & beverage expenses, representing a 4% YoY increase
      • $271MM of hotel departmental expenses
      • 2% YoY increase in other property level expenses to $78MM, which equates to a 1.9% CostPAR
    • Management fees of $39MM, increasing 18% YoY
    • $169MM of property EBITDAR
    • Rental expense of $14MM; $61MM of expenses from leased select service hotels & office buildings and a $10MM credit for hotel sales for property which HST records rental income
    • Other stuff:
      • $24MM of corporate expense
      • $138MM of D&A
      • Net interest expense of $82MM
      • $13MM of taxes
      • 675MM share count  for FFO calc

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EARLY LOOK: What Makes It So Hard


“What makes it so hard is not that you had it bad, but that you're that pissed that so many others had it good.”

-Melvin Udall


EARLY LOOK: What Makes It So Hard - Jack Nicholson



In 1997, Jack Nicholson won the Oscar for Best Actor for his portrayal of an obsessive-compulsive Melvin Udall in “As Good As It Gets.” Particularly for anyone who has ever lived and worked in New York City, this movie really resonated. It was human.


As the Street makes its final push into year-end bonuses, this Melvin quote may not speak as loudly to some of us, but it’s ringing loud and clear across America. How else could the US stock market have its best September in 71 years and US Consumer Confidence readings go DOWN month-over-month? While Americans may not know what “QE” means, they’re pretty sure they should be pissed about it…


Let’s set aside the Manic Media begging Bernanke for more of what he himself has no idea will perpetuate and consider 3 intended consequences that make this so hard for common sense people to accept:

  1. Debauchery of America’s currency.
  2. Record low rates of return on savings accounts.
  3. Economic stagflation.

Now now, don’t get all in a heat here if you are in the perma-deflation camp. At lower prices, we’ll be right there with you. For now prices are inflating. Last week saw gold hit another record high. Oil and copper prices were up another +6.7% and +2.2% week-over-week, respectively.





EARLY LOOK: What Makes It So Hard - Federal Reserve



Consequence #3 is a direct function of the US Federal Reserve being willfully blind to points #1 and #2.


What makes this so hard is the truth.


The truth is that Americans don’t have to buy into Officialdom’s portrayal of the truth. In “A Few Good Men”, Nicholson’s character tried pulling rank by suggesting “you can’t handle the truth!” Sometimes the “authorities” on critical American matters are wrong about the definition of truth.


Americans know the truth. Americans don’t like being lied to. The truth is marked-to-market on their desktop and in their bank accounts every single minute of the day.


For the 1st week in the last 5, the SP500 was down last week. It was barely down, but the point is that it was down. My submission on why is very straightforward. The Burning Buck starts to morph into a very bad thing, turning reflation into inflation, at a price.


Now slowing US economic growth + accelerating inflation growth = economic stagflation for those countries who have a higher nominal rate of inflation than they do economic growth. For countries that have to implement austerity measures, this problem will compound itself by real-wage growth starting to go negative year-over-year. The only thing worse than not having a job is getting a pay cut.


Back to a real-time update on the intended consequences of Bernanke’s plan:

  1. US Dollar = down another -1.64% last week; down for the 15th week out of the last 18; and down -11.8% since June!
  2. US Treasury Yields = down another -6.8% last week to 0.41% 2-yr yields; and down again this morning to a record low 0.40%


EARLY LOOK: What Makes It So Hard - 2yryield



Again, that’s just the truth. And the truth is that a country has never devalued its way to prosperity. Sure, in the short term, inflation makes this good for some of us. But, in the long run, some of us need to remember that it’s the rest of us that matter most.


My immediate term support and resistance lines for the SP500 are now 1141 and 1155, respectively. I currently have a 52% position in Cash in the Asset Allocation Model (down from 55% on Friday as I added a 3% position in corn). In the Hedgeye Portfolio, I’ve moved to 13 long positions and 11 shorts.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer



This note was originally published at 8am this morning, October 04, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

It's October. Is it time for a stock market crash?

Bear/Bull Battle: SP500 Levels, Refreshed ...

The inverse relationship between volatility (VIX) and the SP500 (SPY) remains a critical one to both observe and manage risk around.


I don’t see today’s abrupt breakdown of the SP500 as surprising. It occurred immediately after the VIX broke out above our immediate term TRADE line of 23.10. Currently, the VIX is testing 24.50 and is breaking out above our most immediate term risk management duration for the 1st time since early August.


In terms of critical lines of SP500 support, there are two: 

  1. TREND (intermediate term) = 1144
  2. TRADE (immediate term) = 1141 

Currently, both of these lines are broken. In conjunction with the VIX breakout, that’s bad.



Keith R. McCullough
Chief Executive Officer


Bear/Bull Battle: SP500 Levels, Refreshed ...  - 1

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